The domestic paper recycling sector could be close to “breaking point” following China’s restrictions on imports of lower quality material amid fears that stockpiling of mixed papers is imminent.
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In submissions to the Environmental Audit Committee’s (EAC) recent inquiry on the Chinese import ban, some organisations said that selling mixed paper to alternative markets would become more difficult and predicted stockpiling of material.
After the hearing, an executive in the sector told MRW: “I’m not in possession of hard evidence but all the signs are there and, anecdotally, I have heard that we are at, or close to, breaking point.”
Local authorities have been warned they could face a “financial shock” as markets dry up. Anti-incineration campaigners are also alarmed at the prospect of unsold paper having to be sent for energy recovery instead.
China’s decision to ban imports of certain types of recycled material and put restrictions on others has left operators scrambling to find alternative markets for material while trying to work out the long-term implications.
MRW has been covering the impact on UK plastic exports closely, and the affect of the restrictions on the paper recycling industry is now becoming apparent.
A complete ban on imports of mixed paper came into effect at Chinese ports at the beginning of the year, with recyclers of cardboard (OCC) told that imports will need to contain no more than 0.5% contamination, compared with the previous 1.5%, from March.
The reasoning behind China’s decision is its desire to become self-sufficient and supply all its needs from its domestic market. As a result, UK operators are facing increasing competition when trying to export their paper to alternative markets, while simultaneously dealing with a large drop in the price of mixed paper.
“I’m not in possession of hard evidence but all the signs are there and, anecdotally, I have heard that we are at, or close to, breaking point.”
The EAC has been hearing from waste sector operators as part of its inquiry. Several organisations have warned that alternative markets are filling up, with some fearing that, in the UK, some businesses are likely to be forced to stock larger amounts of material.
In 2016 the UK exported around 74% of its waste paper to China. The new restrictions have meant there is huge pressure on recyclers and exporters to find a new home for material, especially mixed paper. Noting the figures from HM Revenue & Customs in its submission to the EAC, the Confederation of Paper Industries (CPI) said: “From this it will be clear that hitherto the UK has been heavily dependent on China as an outlet for recovered paper, especially mixed paper.”
Waste management company Biffa pointed out the extent of the challenge regarding finding alternative markets in its submission to the committee.
It said: “The UK exports 1.1 million tonnes a year of mixed papers to China which is now banned. But the issue is more extensive because, in total, more than seven million tonnes of mixed paper is imported into China from around the world. All of this material has now been displaced and looking for a new home.
“The rest of the world simply does not have the spare capacity to absorb that volume of material.”
As a result, some observers feel that stockpiling of mixed paper in the UK is inevitable, if not already happening. One executive told MRW that the paper sector could become “seismic” because alternative markets that exporters had been using since the news of the ban first emerged, were coming to the end of their capacity to take material from the UK.
Jakob Rindegren, Environmental Services Association recycling policyadviser, said the situation for mixed paper had deteriorated in the past few weeks as competition for alternative markets put pressure on prices. But he added that the vast majority of material was still finding alternative markets in Europe or south-east Asia.
“However, there is an increased risk that prolonged storage of some low-quality paper will make it unfit for recycling and leave no other outlets than energy from waste (EfW) or landfill. We are working closely with Defra and the Environmental Agency (EA) to manage this process.”
The CPI also said that, at the time of its submission, there were “signs of a build-up of mixed paper material in the supply chain”, and noted a significant fall in the market value of mixed paper, which was likely to “undermine the financial expectations and budgets of stakeholders”.
Simon Weston, director of raw materials at the CPI, said there was still a lack of clarity about how the ban and restrictions on paper were going to pan out: “We are not convinced that the Government understands the seriousness of this.”
He was also among some industry operators to predict that a fundamental policy change on recycling could be needed to help meet higher quality requirements. “The CPI has said before that the best way is not to commingle paper with other recyclables,” he added.
Cycle Link UK is the UK arm of Cycle Link International Holdings (CLIH), one of the wholly-owned subsidiaries of Chinese paper-maker Anhui Shanying Paper Industry Co. The company recently hosted the 2018 Cycle Link International Recycled Fibre Quality Conference in Shanghai, where Chinese imports was a hot topic.
Craig Robinson, CLIH global director of strategy, told MRW that mixed paper had been going to other markets for the past few months, including the UK, Europe, India and Vietnam.
“It has been fine so far. Those alternative markets are still taking some tonnage,” he said. “But we’re at a pinch point now.
“Some people are carrying higher stock, but I’m not sure at what point this becomes stockpiling. Some merchants will go back to sorting grades and minimising mixed paper, and some MRFs will be upgrading to news & pams. They may need to invest or employ more people, but if mixed is £15 and news & pams is £80-£90, then it makes sense.
“I’m not sure we need EfW yet [the idea that excess stock should be burned to recover energy]. It may be inevitable, but not until all other options have been explored.”
According to Robinson, the attitude towards China’s new targets from those at the Shanghai conference was mixed: “Some people are saying it’s a catastrophe but some are quite positive, and we as a buyer have seen that it can be done [reaching the required quality target].”
It was also noted at the conference that there was still uncertainty about how much OCC would actually be let in following the restrictions, with China not clarifying quotas for the future. Some operators are concerned that quotas are unlikely to account for the full amount of the material that is typically exported to China annually.
Colin Clarke, managing director of paper exporter Mark Lyndon, felt that the Chinese requirements were an opportunity to refocus on quality.
He said he had not seen evidence of paper piles.
“It has been about volume for too long and we are rising to the challenge of cleaning up the quality,” he said. “Mixed and OCC are different markets. Good quality material is finding a home.
“Mixed papers will either be up-sorted and cleaned or go to domestic or other Asian markets. Those markets will become more difficult but I haven’t seen any paper piles.
“China is open for business. Suppliers have been working since October to improve quality. Merchants are looking at supply chains and taking quality seriously.”
Concern about Chinese restrictions is not limited to UK exporters. Multinational waste management and packaging group Europac manages around 355,000 tonnes a year of paper and cardboard, which it turns into raw material to make paper products. The situation has prompted it to put out a statement saying that Europe is not capable of processing the excess recovered paper generated since the new Chinese rules and associated prices cuts.
It added that licences for recovered paper imports in China have reduced by two million tonnes a year, which is more than 7% of the total import volume.
The statement said: “Since August, this has led to increased availability and higher stocks. There are also fears of insecurity in exports because the Chinese government has set a 0.5% contaminants cap compared with the 1.5% ceiling in the EU. In practice, this measure introduces a level of arbitrariness into the decision on whether goods are valid, and the cost of returning them in case of non-compliance has to be assumed by the exporter.”
French association Cercle National du Recyclage also warned that the recovered paper market was close to saturation point.
In parallel with these warnings, however, some commentators have noted that there is potentially some hope because China’s belief in self-sufficiency may not be as achievable as quickly as it would like.
After facing criticisms that the UK Government was not doing enough to protect domestic industry, it was revealed that a small fact-finding delegation led by an EA official had met Chinese officials at the Shanghai conference.
Simon Ellin, chief executive of the Recycling Association, was part of the team. He noted that Chinese reprocessors and packaging manufacturers were worried about meeting their need for material. Ellin also noted that imports to fill any shortfalls would be more likely to come from the US because its waste paper contained longer fibres than that from the UK, making it more suitable for recycling.
There was also no sign of a U-turn, a softening of policy or even any more clarity concerning import quotas. But Ellin said: “China’s paper-makers are worried about it too, having to rely on switching to domestic fibre that is not up to the required strength. They are short of fibre, with some retailers short of cardboard boxes.”
Ellin said that a reduction in import licences this year could affect the UK: “There isn’t much clarity about when and how much quota there will be – the information is dribbling through week to week.
“We would like the Government to talk to the Chinese government to really work out what is happening and what the intentions are.”
Like others, Ellin was positive about the move to improved quality and the UK’s ability to meet the challenge. “The UK has made tremendous strides in terms of quality in the past five years,” he said. “There is more than enough good quality cardboard – we are there.
“We need to be investing in our own recycling infrastructure. There was too much exposure to China and this is probably the start of a general trend. So it’s an opportunity for the UK to look carefully at the quality and process of its supply.”
Another underlying consequence of the Chinese restrictions and significant price drops is the impact on local authorities, recycling collections and contracts with waste companies. The EAC has already been warned by Defra how the restrictions could ultimately squeeze council budgets and force council tax rises.
One industry operator told MRW: “This will have a major impact on all materials, collections, MRFs and contracts. They will all be looking at the contracts they’ve got. I think local authorities should be bracing themselves for a financial shock because this is a fundamental shift.”
Industry discusses Chinese de facto ban on shipments
China’s de facto ban on ‘contaminated’ shipments was discussed by representatives of leading associations in the waste sector when they appeared before the Parliamentary watchdog at Westminster.
Defra minister Therese Coffey was also questioned.
MPs on the select committee set aside two sessions to consider the Chinese restrictions on imported waste following concern that the clampdown is hitting the demand for UK exports: 70% of recycled plastics and 66% of paper has traditionally gone to China.
The EAC also received written submissions from businesses, trade associations and campaigners:
CPI: “High-quality recovered fibre will always find a market. It is the poor quality of paper recovered from UK households, often through commingled collections, that creates risk that it will not be sold.”
Recycling Association: “There still remains great uncertainty as to China’s intentions for the rest of the year. It is reported that if China released the same amount [of cardboard import licences] in the last three quarters of this year, they would have licences to import 16.8 million tonnes for the year – down 35% on 2017 imports.”
Viridor: “The recent imposition of 0.5% non-fibre from 1 March will further shrink the volumes of recycled paper that can be exported to China.”
Biffa: “While the ban on mixed paper alone has the potential to put around seven million tonnes back into global markets, there is no guarantee that other grades will be allowed into China in the same quantities as have previously been allowed, which would increase the capacity gap.”
Resource Association: “We, together with colleagues from other associations, have expressed concerns to the Government about risks related to storage and backing up of materials in yards and ports, the potential for increased fly-tipping and fire risk.”
Environment Services Association: “There is unfortunately a risk of abandoned waste sites as prices drop and waste criminals could try to lure both local authorities and businesses into deals which lead to fly-tipping or illegal shipments.”
Friends of the Earth: “The crisis is an opportunity to develop a domestic recycling and reprocessing industry and infrastructure, with tens of thousands of new jobs, greater resource security and efficiency across the economy, and much reduced environmental impact including but not limited to reduced carbon emissions.”
Larac: “We are aware that some authorities have been told to expect a change in the price they get for their material or a change in the gate fee where they send it to a MRF. This will mean an increase in the budgets needed to recycle plastics and paper that councils had not planned for when setting the budgets for this current financial year back in January 2017.”
Eunomia Research and Consulting: “The Chinese situation deserves to be considered as a wake-up call … this should be seen as a turning point where the UK begins to consider the recycled materials it collects as of value in themselves, and not merely as part of a process which is designed to deliver compliance with targets at least cost.”
Chartered Institution of Wastes Management: “Some [members] believe the 0.5% contamination threshold may not be maintained, others are of the opinion that China may backtrack if access to feedstock becomes an issue for its domestic industries.”
Green Alliance: “We are concerned that the reshoring of low-quality material will strengthen calls to increase the network of incinerators in the country, with the logic being that we can at least get energy out of the material that no longer has a market.”
UK paper recycling faces fundamental shift